Question #96 - Reading 1 Multiple Regression

Reading: Reading 1 Multiple Regression

PDF File: Reading 1 Multiple Regression.pdf

Page: 47

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Shared Context

- The percent of the variation in the fund's return that is explained by the regression is: A) 61.78%. B) 81.71%. C) 66.76%.

Question

Suppose the Breusch-Godfrey statistic is 3.22. At a 5% level of significance, which of the following is the most accurate conclusion regarding the presence of serial correlation (at two lags) in the residuals?

Answer Choices:

A. No, because the BG statistic is less than the critical test statistic of 3.55, we don't have evidence of serial correlation

B. Yes, because the BG statistic exceeds the critical test statistic of 3.16, there is evidence of serial correlation

C. No, because the BG statistic is less than the critical test statistic of 3.49, we don't have evidence of serial correlation

Explanation

Number of lags tested = p = 2. The appropriate test statistic for BG test is F-stat with (p = 2) and (n – p – k – 1 = 18) degrees of freedom. From the table, critical value = 3.55.

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